Please ensure Javascript is enabled for purposes of website accessibility

Why Facebook, Inc. Stock Slipped Today

By Jeremy Bowman – Nov 19, 2018 at 6:45PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The social networking giant remains in hot water over recent scandals.

What happened

Shares of Facebook, Inc. (META -0.54%) were sliding today on a continuing string of bad press and amid a broader sell-off in the Nasdaq, which lost 3% on the day. Facebook closed today's session down 5.7%, touching a 52-week-low.

So what 

Concern about Facebook's role in society at large, which had been touched off earlier by Russian hacking in the 2016 election and the Cambridge Analytica scandal, among other issues, arose again when an investigative report from The New York Times came out last Thursday, detailing Facebook's hiring of an opposition firm that sought to tie anti-Facebook activists to liberal financier George Soros, while portraying other critics as anti-Semitic, among other issues that show a company in disarray and acting with questionable ethics. 

The "thumbs-up" sign at Facebook headquarters.

There's not a lot to like for Facebook these days. Image source: Facebook.

Above all, the report illustrated the company and its leaders as a cadre of slick operators, out of touch with the rising backlash against it and the growing opinion that many see it as a force in society for bad, rather than good.

In the aftermath of that report, CEO Mark Zuckerberg held an all-company videoconference to vigorously defend the company and also deny that it had sought to cover up any wrongdoing, as the report intimated. 

Over the weekend, tensions against Facebook continued to brew as a Wall Street Journal article came out saying that Zuckerberg considers his company to be "at war."

Now what

It's become clear that at the very least, Facebook will need to significantly ramp up spending on content-monitoring and other defensive needs to protect the company against potential hacking and from being hijacked as a platform for hate speech, like what happened with the genocide of the Rohingya Muslims in Myanmar. The company has already told investors that much, projecting a narrower operating margin over the coming quarters; however, the greater risk for Facebook is that users and advertisers become so disgusted with the platform that they simply log off. It's unclear at the moment how serious that threat is, since news items like the ones above are often sensationalized by media elites but ignored by the masses. Over the past few quarters, user growth on Facebook in North America and Europe has essentially plateaued.

A measurable user exodus would likely send the stock plunging as it would signal that Facebook's brand has been irrevocably damaged, and those users aren't coming back. On the other hand, if Facebook can survive the current challenges, the stock looks exceptionally cheap at a P/E of just 19. After all, according to conventional financial measurements like revenue growth and profitability, this still looks like a blockbuster business.

Jeremy Bowman owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool recommends The New York Times. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$135.68 (-0.54%) $0.73
The New York Times Company Stock Quote
The New York Times Company
NYT
$28.75 (0.45%) $0.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
104%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.